It’s been several days since disney (SAY$96.21) shocked the media and entertainment industry, not to mention the broader investment community, with news that former CEO Bob Iger was joining the company, ending Bob Chapek’s two-year run for the job on higher. Disney stock opened Monday up 10% on the news.
It has since lost some of those gains, but the company’s stock price remains up on the week, reversing weakness after its latest earnings report.
Chapek’s ousting, while shocking, really shouldn’t have surprised anyone.
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Jim Cramer, CNBC’s “Mad Money” host, suggested Chapek should be fired on Nov. 9.
“Disney, they have ESPN. If we were on ESPN, we’d say he needs to be fired. It’s pretty simple,” Cramer said. said on CNBC’s business news program ‘Squawk Box’ Wednesday morning. “The losses here are just mind-boggling. When you get past the quarter, it’s mind-blowing.”
Cramer pointed to the company’s $1.5 billion loss to Disney+ as a key reason Chapek was no longer fit to run the house Walt built.
And while Disney’s stock is up this week, which doesn’t make sense, that’s why the Disney board felt compelled to bring Iger back to clean up a mess he made. .
While virtually anyone with extensive media and entertainment experience would do, the board opted to bring in a 71-year-old to fix what may not be fixable.
Disney shareholders seem happy with the move — as do many investment professionals, including Cramer — but, as the saying goes, be careful what you wish for.
Iger’s chances of success are no shoo-in. Here’s why.
Disney Stock Needs Disney+ Profitability
As Chapek pointed out in Disney’s Fiscal Fourth Quarter 2022 earnings, the Disney+ platform added 12.1 million subscribers in the three months ended October 1. However, that includes Disney+ Hotstar, a bundled service that includes Hulu and ESPN+. So if you exclude that part of its business, Disney+’s increase in the third quarter was 9.3 million, or 9.9% more quarter-over-quarter.
If it continues to grow Disney+ subscribers by 10% per quarter, it will take seven quarters to reach 200 million subscribers worldwide. netflix (NFLX (opens in a new tab)), which has been streaming video since 2007, grew its global subscriber base in Q3 2022 by 4.5% to 223 million.
Netflix took 19 years to reach 200 million subscribers. If Disney maintains 10% quarterly growth, it will have achieved this feat in 4.5 years, less than a quarter of the time it took Netflix.
Now okay, the video streaming landscape has become much more competitive since Reed Hastings called for streaming nearly two decades ago.
And that makes Disney+ profitability even more elusive than ever.
As mentioned earlier, Disney+ and the rest of its direct-to-consumer business lost $1.5 billion in the fourth quarter. It lost just over $4 billion for the full year, with Disney+ accounting for the lion’s share.
If Iger isn’t careful, those losses could double in no time, knocking his fiscal 2024 profitability target out the window.
Iger has 2 years to right the ship
As the Press release said, Iger will serve as CEO of Disney for two years. He has 24 months to right the ship and find a successor.
If you recall, Chapek was officially named CEO on February 25, 2020. At the time, Chapek was President of Disney Parks, Experiences and Products.
Bob Iger declared on Chapek’s appointment in the press release at the time:
“His success over the past 27 years reflects his visionary leadership and the strong growth of the company and the outstanding results he has consistently achieved in his roles at Parks, Consumer Products and the Studio.”
Iger had plenty of time to choose a successor. He missed it. Now he only has 24 months to get it right. What could go wrong?
One interesting possibility is for Disney to acquire Candle Media. It was launched in 2021 by former Disney executives Kevin Mayer and Tom Staggs with $2 billion in backing from Blackstone. Since then, Candle has been on an acquisition spree.
Mayer and Staggs could co-run Disney like Michael Eisner and Frank Wells did in the 1980s.
There are plenty of things that need attention at Disney, but none more important than refining the company’s streaming strategy. First, it needs to expand the content it puts on Disney+. If it doesn’t, it’s hard to see it hitting its subscriber or profitability goals.
Iger gets all the credit for launching Disney+ in 2019. Now it’s up to him to make it more profitable. It’s not sure.
They say you can’t put the genie back in the bottle. But, unfortunately, Disney is trying to do just that. Shareholders should not be happy with this decision. It could easily backfire on you.